Luxury second home demand continues to outperform category and market

Published Date: August 29, 2022

Pacaso Second Home Market Analysis Q2 2022: Key takeaways

  • Luxury second home transactions increased 25% year-over-year during Q2 2022
  • Compared to pre-pandemic levels, luxury second home sales increased 235% since Q1 2020
  • Second home buyers are flocking to locally-relevant destinations with beaches and year-round outdoor activities, including Coeur d’Alene, ID; Williamson County, TN; and Kitsap County, WA
According to second home mortgage rate lock data analyzed by Pacaso’s research team, sales of luxury second homes and investment properties - which are defined as homes sold for $1 million or more that are designated for seasonal and/or recreational use - increased nearly 25% year-over-year during the second quarter of 2022 and approximately 235% compared to Q1 2020, prior to the pandemic intensifying in the U.S.
“Overall, luxury real estate exceeded expectations and outperformed the rest of the second home category and the overall real estate market in Q2 2022,” said Pacaso Co-Founder and CEO Austin Allison. “Despite a rising interest rate environment and growing concerns of a recession, it is clear that demand for this type of asset remains strong.”  

Resilience of the luxury second home buyer and real estate market

The last two years, particularly during the peak of the pandemic, the housing market experienced record growth. Home price appreciation seemingly peaked in April of 2022, when it was up 21% nationwide. Today, the market is beginning to normalize from those unprecedented levels. In May, home prices decelerated for the first time in five months, but were up double digits year-over-year for the 16th consecutive month. The deceleration was partially driven by rising interest rates, an uncertain economy and geopolitical unrest in the Ukraine. Contrary to some headlines, many economists believe that the housing market will continue to grow through 2022, albeit not at the same pace as 2020 and 2021.The current volatility in the stock market has impacted many consumers’ overall net worth in recent months. This in turn drives many to look to more stable asset classes, such as real estate. Recent research from Pacaso revealed that since 1980, real estate has been more stable than typical stock market indexes during periods of economic recession or uncertainty.“Affluent consumers tend to be more insulated from the impacts of an economic downturn,” continued Allison. “Some consumers will look to real estate as a more stable place to park their money during times of increased market volatility. Although they may trim their budgets, this group is less likely to completely drop out of the market. As a result, demand for luxury real estate remains strong, but the acceleration of home price appreciation for this category will likely continue to slow as we saw during Q2 2022.” 

Luxury real estate is less impacted by rising interest rates 

While interest rates are rising compared to record low rates during the pandemic, the housing market is still experiencing very healthy demand, particularly in the luxury second home segment. Thirty-year fixed rates rose above 5% in April for the first time in more than a decade. In the second week of June, interest rates rose by 55 basis points, which was the largest one-week increase since 1987. However, for the past 50 years, 30-year fixed mortgage rates have averaged approximately 8%, even crossing above a staggering 18% in the early 1980s. With rates averaging around 5% today, they are still relatively low comparatively.
It is important to note that the total share of second home mortgage rate locks was 2.7% in Q2 2022, dropping below the pre-pandemic national average of 3.5% (based on second home mortgage rate locks between 2015-2019). The luxury category makes up approximately 12% of all second home mortgage rate locks. The median price for all second home mortgage rate locks during Q2 2022 was $435,000, which was up 19% year-over-year. Looking specifically at the luxury category, the median price was approximately $1.4 million, which remained relatively flat on a year-over-year basis.However, when it comes to second homes, more than 50% of buyers pay in all cash*. For this reason, looking simply at second home mortgage rate lock data is not the best indicator of true second home sales in the U.S. The median-to-lower end of the housing market, which makes up approximately 88% of all second home mortgage rate locks is being hit particularly hard, thus driving down total second home mortgage rate lock growth on a year-over-basis. In fact, numerous discount brokerages and mortgage companies are reportedly laying off agents in mass due to decreasing demand for median to lower priced homes. 

Second home buyers flock to locally-relevant destinations featuring outdoor activities

Second home buyers were focused on locally-relevant destinations that feature outdoor attractions, many located along waterfronts, as the peak summer travel season approached. “For the past two years, premier second home destinations like Aspen, Malibu and Tahoe experienced strong buyer demand,” said Allison. “As inventories were constrained and prices accelerated in those markets, buyers began looking to more locally-relevant destinations for their second home. In those markets, buyers can get a lot more for their money without sacrificing on the quality of their home or proximity to outdoor activities.”Coeur d’Alene, ID and Williamson County, TN experienced the largest year-over-year increase in the median purchase price for luxury second homes of 52% and 42%, respectively. These destinations offer a wealth of outdoor activities, such as hiking, mountain biking, and fishing, making them optimal second home destinations. Situated along Washington’s Puget Sound, Kitsap County, WA, which boasts miles of beautiful shoreline, golf courses, water activities, and boat excursions, saw the median price of luxury second homes increase 39% year-over-year.Cape Cod, MA experienced the largest increase in second home rate lock transactions during Q2 2022 (+236% year-over-year). Located just south of Boston, Cape Cod offers a wealth of outdoor activities, pristine beaches, five star restaurants and some of the best mini golf courses in the nation for family-friendly fun. Beachfront counties dominated the top ten list of destinations by transaction count, including  St. Johns County, FL which saw a 220% increase. Sevier County, TN, which is known as the gateway to the Great Smoky Mountains National Park, and Clark County, NV, home to The Last Vegas Strip, also experienced strong growth in second home rate locks, up 147% and 108%, respectively.

Destinations with the strongest Q2 2022 luxury second home price increases

DestinationMedian Purchase Price ($1M+)Year-over-year Increase
Coeur d'Alene, ID$1,745,00051.7%
Williamson County, TN$1,748,00042.1%
Kitsap County, WA$1,525,00038.6%
Charleston County, SC$1,898,00035.5%
Truckee-Grass Valley, CA$1,613,00031.6%
Orange County, FL$1,500,00026.1%
Currituck County, NC$1,512,00026.0%
Baldwin County, AL$1,338,00021.6%
Santa Clara County, CA$1,610,00021.1%
Heber, UT$1,530,00020.0%

Destinations with the strongest Q2 2022 luxury second home mortgage rate lock growth

DestinationYear-over-year Second Home Rate Lock Increase ($1M+)
Cape Cod, MA236%
St. Johns County, FL220%
Kings County, NY168%
Sevier County, TN147%
Elizabeth Islands, MA140%
Ocean City, NJ123%
Miami-Dade County, FL108%
Clark County, NV108%
Ocean County, NJ106%
Baldwin County, AL100%

Methodology

Pacaso identified the nation’s top second home markets by compiling census data on counties with a percentage of seasonal homes and median home values at or above the top 20th percentile, and by excluding those below the bottom 10th percentile of counties with the fewest households.Pacaso then analyzed real estate activity in the top second home markets by observing mortgage rate lock data, a leading indicator of second home buying activity. When applying for a mortgage rate lock, a home buyer must specify whether they are securing a mortgage rate for a primary home, secondary home or an investment property. Approximately 80% of mortgage rate locks result in home purchases. Mortgage rate lock data was provided by real estate analytics firm Optimal Blue and includes a sizable share of the market that is taken to be representative of the whole. For this analysis Pacaso’s research team looked at mortgage rate lock volume for both second homes and investment properties for Q2 2022 with a purchase price of greater than $1 million to focus on the luxury end of the second home and investment property category. Rate lock transactions and median purchase price data were sourced at the county level for counties that had a minimum of 5 second home transactions and aggregated quarterly, with Q2 representing the months of April through June 2022.
Looking to purchase a second home? Pacaso analyzed data from Optimal Blue to determine hot second home destinations and Q2 2022 market trends.
* National Association of REALTORS®, June 2021

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